UK Inflation - worse things to come?
Overview
The UK's September inflation figures were released today. Inflation has not come down and continues to be high. This puts the Bank of England (BOE) in a dilemma.
The Details
UK YOY inflation has been released as 6.70%, the same as the previous month. Despite the BOE's rate hikes, UK inflation remains high and looks stubborn now. This could be the start of some significant economic challenges for the UK.
Further rate hikes - the conventional policy is to continue to raise rates. Expect another rate hike from the BOE - possibly even rate hikes, yes, plural. The problem with this is the current rates are having a significant pinch on UK households. To raise rates further, signs the financial death warrant on many UK households. To beat inflation, the BOE may need to keep hiking rates until something breaks, i.e. the UK hits recession.
Stop raising rates - this could be seen as irresponsible and letting inflation off its leash.
So, continue to raise rates and break the UK economy, or hold rates and let inflation get out of control.
Things to consider:
The UK's September inflation figures were released today. Inflation has not come down and continues to be high. This puts the Bank of England (BOE) in a dilemma.
The Details
UK YOY inflation has been released as 6.70%, the same as the previous month. Despite the BOE's rate hikes, UK inflation remains high and looks stubborn now. This could be the start of some significant economic challenges for the UK.
Further rate hikes - the conventional policy is to continue to raise rates. Expect another rate hike from the BOE - possibly even rate hikes, yes, plural. The problem with this is the current rates are having a significant pinch on UK households. To raise rates further, signs the financial death warrant on many UK households. To beat inflation, the BOE may need to keep hiking rates until something breaks, i.e. the UK hits recession.
Stop raising rates - this could be seen as irresponsible and letting inflation off its leash.
So, continue to raise rates and break the UK economy, or hold rates and let inflation get out of control.
Things to consider:
- This is early days. It will take some time for the above to dawn on the market.
- As this is early days, inflation for October may be lower, so the "panic" will be over quickly.
- Holding or raising rates could be bad news for GBP. It is a sell either way. Raise rates and the UK hits recession. Don't hike rates and get hit with high inflation. The latter will cause more substantial downside moves on GBP pairs.